Abstract
If larger pension savings lead to deeper capital markets, this can be expected to have a positive effect on economic growth in particular for firms that rely on external finance. We employ this differential impact on firms with less or more external finance to identify the effect of pension saving on economic growth. Using data for 69 industrial sectors in 34 OECD countries for the period 2001–2010, we find a significant impact of pension assets on growth for sectors that are more dependent on external financing. This relation is not significantly changed by the 2007–2008 banking crisis.
Highlights
Many countries promote private pension saving in response to population ageing and the rising burden of PAYG pensions (OECD 2017)
It is likely that the role of institutional investors as pension funds and insurance companies in financial intermediation will increase in the future
This may positively affect economic growth as these institutional investors can be expected to be more committed to long term investments
Summary
Many countries promote private pension saving in response to population ageing and the rising burden of PAYG (pay-as-you-go) pensions (OECD 2017). A larger role of funded pensions is seen as necessary to keep up individual pensions. It could strengthen economic growth by deepening capital markets (World Bank 1994). Pension saving may directly fuel economic growth by providing more funds for investment. Larger pension saving could strengthen the role of institutional investors which can be expected to more be committed to long term investment Lakonishok et al 1992) These institutional investors may increase efficiency in firms directly by improving governance by acting as large shareholders (Thomas and Spataro 2016)
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